Episode 10: Upzoning and Single-Family Housing Prices with Daniel Kuhlmann

Kuhlmann, "Upzoning and Single-Family Housing Prices: A (Very) Early Analysis of the Minneapolis 2040 Plan"

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Episode Summary: Many cities — and the entire state of California — are considering ending single-family zoning, or apartment bans, to improve housing affordability and address historic injustices in housing and land use. Opponents of these reforms argue that “upzoning” for higher-density housing will do the opposite, raising housing prices and harming lower-income communities and communities of color. Dr. Daniel Kuhlmann of Iowa State University ran the numbers for the first major city in America to end single-family zoning, Minneapolis. The prices of some single-family homes do indeed go up, but as Professor Kuhlmann argues, the price of some parcels must rise in order to encourage redevelopment and produce more affordable housing options for the city as a whole.

Abstract: In December 2018, the Minneapolis (MN) city council approved a new comprehensive plan that proposed eliminating single-family zoning restrictions throughout the city. In this project, I study the initial impact of this change on the sales prices of affected housing units. I estimate a series of difference-in-differences models comparing the sales price of houses within 3 km of the Minneapolis border in the year before and year after the city adopted the plan. I find that compared with similar unaffected properties in surrounding cities, the Minneapolis plan change was associated with a 3% and 5% increase in the price of affected housing units. In addition, there is some evidence that this price increase is due to the new development option it offers property owners. I find that the plan-related price increases are larger in inexpensive neighborhoods and for properties that are small relative to their immediate neighbors.

  • “Despite being the urban center of a major metropolitan area, Minneapolis (MN) has historically restricted a substantial portion of development on its residential land to single-family housing. In 2018, the city’s zoning ordinance allowed only single-family homes on 70% of land zoned for residential uses … Single-family zoning regulations can produce harmful side effects that extend outside the neighborhoods in which they are used. Researchers find that strict residential development regulations can inflate land (Kok et al., 2014) and housing (Glaeser & Gyourko, 2002, 2005; Quigley et al., 2005) prices, produce patterns of racial and economic segregation (Lens & Monkkonen, 2016), and lead to ecologically harmful patterns of urban sprawl (Nechyba & Walsh, 2004; Pendall, 1999). Moreover, there is a burgeoning consensus among planners that to make places more affordable, sustainable, and equitable, cities must work to increase both the amount and variety of housing within their borders (Been et al., 2019). Although single-family zoning restrictions are not the only barrier to achieving this goal, in high-demand central cities they can be highly constraining. As a result, critics are increasingly calling on cities to eliminate their use of single-family zoning restrictions (Manville et al., 2020a, 2020b; Wegmann, 2020).”

 

  • “First approved in December 2018, the city’s 2040 plan recommended several progressive land use reforms, including eliminating off-street parking minimums and increasing densities along transit corridors. But, most notably, the plan abolishes single-family minimums, allowing instead three unattached residential units per parcel.”

 

  • “I study the effect of 2040 plan upzoning during this interim period between when the city had publicly signaled it would allow 3-unit structures across the city but before it had set the additional setback, bulk, and other requirements to which these new uses would still need to conform. In this study, I am thus examining the impact of an ostensibly radical land use change before the city implemented it in a more tempered form.”

 

  • “Minneapolis eliminated single-family zoning in hopes that it would increase residential development, creating more homes and ultimately moderating rising housing prices (City of Minneapolis, 2019). But this process takes time. If the plan is to spur future redevelopment, the change should first raise the value of houses for which there is demand greater than their current single-family use. Under the old plan, the value of a single-family house is determined by its current use and the option to redevelop at the same density. After the change, the property owner retains these previous two options but can now also redevelop up to a density of three attached units per parcel. If the potential future value of these 3 units is greater than its current single-family use, the upzoning should increase the property’s value (Ohls et al., 1974).”

 

  • “I test the initial impact of the proposed land use changes using a difference-in-differences (DiD) design comparing housing prices before and after Minneapolis initially adopted the plan. I compare these changes with houses located within a short distance of the Minneapolis border. This allows me to compare how prices of single-family properties changed before and after Minneapolis approved the new plan, with a similar set of properties that were not upzoned by their respective cities. In addition, I test whether the impact of the plan change affected certain types of houses more than others by comparing between high- and low-valued neighborhoods and by testing whether the price effect of the change differed based on a house’s size relative to its immediate neighborhood.”

 

  • “R1 regulations have teeth in areas where there is demand for denser uses. Boosters of the 2040 plan argue that there is demand for more housing in Minneapolis. Indeed, one of the city’s goals in removing R1 zoning regulations is to increase the density of future development. There is little undeveloped residential land left in Minneapolis; thus, substantially growing the city’s housing stock requires increasing the density, not just the rate, of new development … Nevertheless, some may find it counterintuitive that a policy designed to address rising housing prices will (and, as I argue, must) first increase the price of affected houses. It is important that one not confuse the price of individual single-family houses with housing prices more broadly. R1 zoning in areas where there is demand for denser housing subsidizes the cost of the permitted land use. Single-family housing is cheaper but only because there is less competition for the land on which those houses sit (Monkkonen, 2019) … R1 zoning, however, raises the price of denser housing across the city by limiting where developers can build such units. Changing the permitted uses in high-demand areas will increase the price of individual parcels, but as long as it leads to some eventual denser redevelopment, it will relieve the upward pressure on housing prices more generally (or so follows the logic). If developers begin replacing single-family houses with triplexes, the three new units will be relatively less expensive than they would be when (prior to the land use change) there was less land on which the city permitted such buildings.”

 

  • “In Model 1, I limited the sample to transactions within 1 km of the Minneapolis border, in Model 2 I expanded the buffer to 2 km, and in Model 3 I used the widest 3-km buffer. In all three models, the coefficient on the Minneapolis/post-interaction term is positive and statistically significant. Although it remains significant, the size of the interaction coefficient declines as the buffer increases. With the 1-km buffer, my model suggests that the plan’s approval increased property sales values by approximately 5% relative to nearby, continuously single-family-zoned housing units. The estimated effect declines to around 3% in the model with the widest (3-km) buffer.”

 

  • “Next, I examined whether the effect of the 2040 plan upzoning differs based on underlying neighborhood characteristics. Here I estimated each model twice, once for houses that are located in relatively expensive neighborhoods (which I define as those where the median assessed value of the tract is greater than their respective cities) and again for those in relatively inexpensive tracts. I present these models in Table 3. In all models, the interaction coefficient was larger when I estimated the model with transactions from the less-expensive neighborhoods. It is only significant, however, in the model that I specified using the 3-km buffer.”

“In my final test, I examined whether a property’s relative size within its immediate neighborhood affects the impact of the 2040 plan’s proposed upzoning on property values. I expected that the impact of the upzoning would be positively associated with an individual housing unit’s redevelopment potential. Although imperfect, I used a transaction’s size relative to other houses within 200 m as a proxy for this. If property owners raze and redevelop existing single-family houses using the provisions of the 2040 plan, we should expect that they would target the smallest and lowest valued house in a particular neighborhood … I present these results in Table 4, again using the 1-, 2-, and 3-km buffers. I included a third interaction term measuring a transaction’s percentile size rank (measured by total square footage) among houses within a 200-m buffer. In each model, the coefficient on the triple interaction is negative and significant in the model using the 1- and 3-km buffers. This suggests that the effect of the 2040 plan upzoning is smaller for housing units that are relatively large compared with nearby houses. Or, put differently, the increased development potential of the upzoning redounds more directly to relatively small homes.”

  • “Despite being the urban center of a major metropolitan area, Minneapolis (MN) has historically restricted a substantial portion of development on its residential land to single-family housing. In 2018, the city’s zoning ordinance allowed only single-family homes on 70% of land zoned for residential uses … Single-family zoning regulations can produce harmful side effects that extend outside the neighborhoods in which they are used. Researchers find that strict residential development regulations can inflate land (Kok et al., 2014) and housing (Glaeser & Gyourko, 2002, 2005; Quigley et al., 2005) prices, produce patterns of racial and economic segregation (Lens & Monkkonen, 2016), and lead to ecologically harmful patterns of urban sprawl (Nechyba & Walsh, 2004; Pendall, 1999). Moreover, there is a burgeoning consensus among planners that to make places more affordable, sustainable, and equitable, cities must work to increase both the amount and variety of housing within their borders (Been et al., 2019). Although single-family zoning restrictions are not the only barrier to achieving this goal, in high-demand central cities they can be highly constraining. As a result, critics are increasingly calling on cities to eliminate their use of single-family zoning restrictions (Manville et al., 2020a, 2020b; Wegmann, 2020).”

 

  • “First approved in December 2018, the city’s 2040 plan recommended several progressive land use reforms, including eliminating off-street parking minimums and increasing densities along transit corridors. But, most notably, the plan abolishes single-family minimums, allowing instead three unattached residential units per parcel.”

 

  • “I study the effect of 2040 plan upzoning during this interim period between when the city had publicly signaled it would allow 3-unit structures across the city but before it had set the additional setback, bulk, and other requirements to which these new uses would still need to conform. In this study, I am thus examining the impact of an ostensibly radical land use change before the city implemented it in a more tempered form.”

 

  • “Minneapolis eliminated single-family zoning in hopes that it would increase residential development, creating more homes and ultimately moderating rising housing prices (City of Minneapolis, 2019). But this process takes time. If the plan is to spur future redevelopment, the change should first raise the value of houses for which there is demand greater than their current single-family use. Under the old plan, the value of a single-family house is determined by its current use and the option to redevelop at the same density. After the change, the property owner retains these previous two options but can now also redevelop up to a density of three attached units per parcel. If the potential future value of these 3 units is greater than its current single-family use, the upzoning should increase the property’s value (Ohls et al., 1974).”

 

  • “I test the initial impact of the proposed land use changes using a difference-in-differences (DiD) design comparing housing prices before and after Minneapolis initially adopted the plan. I compare these changes with houses located within a short distance of the Minneapolis border. This allows me to compare how prices of single-family properties changed before and after Minneapolis approved the new plan, with a similar set of properties that were not upzoned by their respective cities. In addition, I test whether the impact of the plan change affected certain types of houses more than others by comparing between high- and low-valued neighborhoods and by testing whether the price effect of the change differed based on a house’s size relative to its immediate neighborhood.”

 

  • “R1 regulations have teeth in areas where there is demand for denser uses. Boosters of the 2040 plan argue that there is demand for more housing in Minneapolis. Indeed, one of the city’s goals in removing R1 zoning regulations is to increase the density of future development. There is little undeveloped residential land left in Minneapolis; thus, substantially growing the city’s housing stock requires increasing the density, not just the rate, of new development … Nevertheless, some may find it counterintuitive that a policy designed to address rising housing prices will (and, as I argue, must) first increase the price of affected houses. It is important that one not confuse the price of individual single-family houses with housing prices more broadly. R1 zoning in areas where there is demand for denser housing subsidizes the cost of the permitted land use. Single-family housing is cheaper but only because there is less competition for the land on which those houses sit (Monkkonen, 2019) … R1 zoning, however, raises the price of denser housing across the city by limiting where developers can build such units. Changing the permitted uses in high-demand areas will increase the price of individual parcels, but as long as it leads to some eventual denser redevelopment, it will relieve the upward pressure on housing prices more generally (or so follows the logic). If developers begin replacing single-family houses with triplexes, the three new units will be relatively less expensive than they would be when (prior to the land use change) there was less land on which the city permitted such buildings.”

 

  • “In Model 1, I limited the sample to transactions within 1 km of the Minneapolis border, in Model 2 I expanded the buffer to 2 km, and in Model 3 I used the widest 3-km buffer. In all three models, the coefficient on the Minneapolis/post-interaction term is positive and statistically significant. Although it remains significant, the size of the interaction coefficient declines as the buffer increases. With the 1-km buffer, my model suggests that the plan’s approval increased property sales values by approximately 5% relative to nearby, continuously single-family-zoned housing units. The estimated effect declines to around 3% in the model with the widest (3-km) buffer.”

 

  • “Next, I examined whether the effect of the 2040 plan upzoning differs based on underlying neighborhood characteristics. Here I estimated each model twice, once for houses that are located in relatively expensive neighborhoods (which I define as those where the median assessed value of the tract is greater than their respective cities) and again for those in relatively inexpensive tracts. I present these models in Table 3. In all models, the interaction coefficient was larger when I estimated the model with transactions from the less-expensive neighborhoods. It is only significant, however, in the model that I specified using the 3-km buffer.”

“In my final test, I examined whether a property’s relative size within its immediate neighborhood affects the impact of the 2040 plan’s proposed upzoning on property values. I expected that the impact of the upzoning would be positively associated with an individual housing unit’s redevelopment potential. Although imperfect, I used a transaction’s size relative to other houses within 200 m as a proxy for this. If property owners raze and redevelop existing single-family houses using the provisions of the 2040 plan, we should expect that they would target the smallest and lowest valued house in a particular neighborhood … I present these results in Table 4, again using the 1-, 2-, and 3-km buffers. I included a third interaction term measuring a transaction’s percentile size rank (measured by total square footage) among houses within a 200-m buffer. In each model, the coefficient on the triple interaction is negative and significant in the model using the 1- and 3-km buffers. This suggests that the effect of the 2040 plan upzoning is smaller for housing units that are relatively large compared with nearby houses. Or, put differently, the increased development potential of the upzoning redounds more directly to relatively small homes.”

Shane Phillips 0:04
Hi there. This is the Housing Voice podcast and I'm your host, Shane Phillips. Housing Voice is a production of the UCLA Lewis Center for Regional Policy Studies. My co-host today is Dr. Mike Manville, and this time we're talking with Dr. Dan Kuhlmann of Iowa State University. The paper we're discussing this time is about what happens when you eliminate single-family zoning citywide, which is something you couldn't study before 2018 because no major US city had done it yet. Minneapolis ended its apartment bans at the end of 2018. And now it allows up to three units on any residential parcel. So it finally gave us an opportunity to study what happens. Many of our listeners will know that this is very much a live debate in the housing policy and advocacy space. Some people will say, mostly disingenuously I would argue, that ending single-family zoning will be the end of single-family homes. And that's pretty plainly untrue. But whether this kind of blanket upzoning improves affordability or not, is an open question. Even if we have good reason to believe that it will, at least over the medium to long term, Dan's work gives us an early insight into how the price of single-family properties changes when more development is allowed upon them, and how the impacts might vary by the value of a home relative to its neighbors, or by the affluence of a neighborhood relative to other neighborhoods. The results here are really interesting, and they're super important. But as we discussed in the interview, there are many ways that the results can be interpreted. And so most of our time is spent exploring how we should interpret them, not just to understand what they can tell us, but what they probably can't tell us as well. I personally got a lot out of this conversation, and I think you will as well. As always, if you liked the podcast, please be sure to subscribe or tell a friend about us. It really does help us reach more people.

With us today is Professor Dan Kuhlmann. Dan received his bachelor's degree from Carleton College and his Master's and PhD from Cornell. And he's now an assistant professor of Community and Regional Planning at Iowa State University. He's here to talk about his paper titled 'Upzoning and Single-family Housing Prices: A very Early Analysis of the Minneapolis 2040 Plan', in the Journal of American Planning Association. And I did want to note that Mike Manville and Paavo, and I think Mike Lens as well, are pretty extensively cited in this paper. And so I want to congratulate you on your foresight, knowing that we were going to start a podcast in 2021. It was a good way to get on. So yeah, good call. So thanks for coming on the show, Dan.

Dan Kuhlmann 2:42
Yeah, thanks for having me.

Shane Phillips 2:43
And we have got Mike Manville back in the studio, aka each of our respective homes, as our co-host. And Mike was actually Dan's PhD advisor at Cornell. So we're happy to host this joyous reunion here.

Michael Manville 2:57
Yeah, it's good to see that Dan overcame the initial hindrance of bad advising. So I claim no credit, everything was just getting over the initial hurdle of me.

Shane Phillips 3:14
It's always good.... it's good practice to cite your advisor I've been told. So that's...

Michael Manville 3:20
Only until you graduate.

Shane Phillips 3:21
That's true. So before we get into your research, Dan, we'll just start with something a little bit lighter, but still make it a little bit planning-esque, if you were giving us a tour of your city, and I think you're in Santa Fe right now, not yet in Ames, what would be the number one thing you'd want to show us? It can be Santa Fe, it can be your hometown, wherever you like.

Dan Kuhlmann 3:41
Yeah, that's a... man, talking about my research is easy, this is a tough question. I'm lucky enough to do the pandemic in Santa Fe with some friends and family. And I think ,you know, I really love Northern New Mexico, and Santa Fe specifically, and so to show you one thing is to show you the city I think. To answer this as sort of a pedantic Urban Planning Professor, I think Santa Fe is a good example of, it's a complicated city because it is beautiful and unique and the built environment's really interesting. But it's also a city that was like super planned. You know, there's tons of historic preservation regulations here. It's really, really hard to build. And especially, you know, in the last couple years, the time that I've been here, it's just becoming increasingly unaffordable. It's, you know, a place where you can afford to be as a tourist and a rich retiree and increasingly not much else. And so I think it's kind of an interesting, it's an interesting city to think about critically in that way. Because it's unique yet it's a place that is, you know, it kind of pays for it with high housing prices.

Shane Phillips 4:43
Yeah, and as a fellow urban planner, who can't help but tie anything back to housing policy, I respect that answer. I think there's actually a good, maybe 99th Invisible episode on this, so we'll make sure to include that in the show notes.

Dan Kuhlmann 5:01
Yeah, yeah.

Shane Phillips 5:02
And what got you interested in housing and local public finance as your academic focus?

Dan Kuhlmann 5:07
Yeah, that's another good question. I mean, I would like to think that I was unique in my intellectual development. But, of course, that's not the case. You know, I graduated from my undergrad in 2008, in the peak of one housing crisis, and then was working and then went to grad school during the lead up to the current housing crisis. And so I was just, you know, that that seemed to me to be the questions that we needed to think about, these kinds of housing questions generally, and then, you know, with the current housing crisis about how, you know, being in a planning program, how planning is affecting kind of housing affordability, and what we can do from a kind of a research perspective to help kind of undo some of those problems. In addition to having a great adviser who pushed me in the right direction as well.

Shane Phillips 5:51
Of course, so today, we are talking about what happens to home prices when you eliminate single family zoning, and as the first city in the entire country to eliminate R1 zoning citywide, Minneapolis is obviously a good place to start to ask that question. Like virtually every city in America prior to 2018, the majority of Minneapolis residential land prohibited anything other than single-unit detached homes, on each parcel. Multifamily housing, even you know, something as modest as a duplex couldn't be built. Now, you can build at least three units on pretty much every residentially zoned parcel in the city. And at the time of this recording, actually, we are, I guess, done debating a similar proposal here in California. It's been passed by the Senate, and the assembly, and is just awaiting the governor's signature. And a few other cities have followed Minneapolis as lead on this as well and ended these apartment bans. Like any proposal that would increase the amount of housing in a community these reforms always face, you know, human opposition. And people make all kinds of arguments against them. Our listeners, I think, are familiar with a lot of those about parking and traffic and infrastructure, neighborhood character, more explicit classist and racist claims about who belongs in a place, and who is welcome. But the one you're exploring here in this paper is affordability. And we have people who support zoning for greater density, who argue that it will make housing more affordable. And at the same time, we have opponents who argue that it will make homes actually more expensive. So can you just walk us through that logic for the latter claim? How does upzoning make housing prices go up?

Dan Kuhlmann 7:33
Yeah, I mean, I push back on one thing you said there's like, I don't think I'm measuring affordability as we would generally conceive it in this paper. And when we think about affordability, we're talking about, you know, rents and kind of a lot of kind of complex things that I'm not I'm not studying in this paper, and we'll talk about that.

Shane Phillips 7:48
That's a good point, in a second.

Dan Kuhlmann 7:50
But, you know, as I think I showed, my paper I try and kind of unpack is that it affects properties, in kind of really complicated ways when you have these sort of blanket upzonings that I'm kind of studying here. So I think maybe a good way to conceptualize it is with like a simpler analogy, where you think about, like changing the zoning on a single property, like what that's going to do to the value of the property. So y'all are in, you know LA, you could think of someone who purchased like a surface parking lot in downtown LA that was, you know, let's say there's zoning that suddenly allows surface parking lots on that site. A developer could buy that, and, you know, obviously, it has value as a surface parking lot, you can continue to operate it and kind of charge people to park there. But the way of developer could add value is to go and petition the city through like variants, or kind of changing the zoning on that parcel and allow something denser, so allow, you know, an apartment building or a condo or an office or something like that. And by virtue of changing the zoning, you have, you would assume in downtown LA, increased the value of the property through the entitlement process, right?

Shane Phillips 8:51
By a lot

Dan Kuhlmann 8:51
Right, by a lot yeah. And so the developers change, that's how developers add value to a lot of projects is by, you know, changing the entitlement and like kind of overnight, all of a sudden, you can do a lot more with the property, you have kind of more property rights with it. And so I think that's essentially what I'm measuring here in Minneapolis, except for it's not a single lot, it's every residential parcel in the city. So, you know, overnight, when the comprehensive plan was adopted, you could continue to use the house as a single family, its current use a single family, but then all of a sudden, you have the option to develop at a denser use. And so that's sort of I think the way that I'm thinking about it. And so once you have this option, you know, it's not going to affect all properties, some properties of the highest and best use of single-family, but others, you know, maybe are going to be redeveloped over time. And again, that should be reflected in the price of the property, you buy the property as a whole, but really it's reflected in the price of the land, I think.

Shane Phillips 9:43
Right, and, you know, I appreciate your correction, that this isn't really about affordability, but about prices and that distinction and I think we'll get to that distinction and why it's so important. But you know, the concern is you're going to up some things and prices will go up and that equates to making things more unaffordable. And you know, a passage from your paper that really stood out to me was this line, you say, "some may find it counterintuitive that a policy designed to address rising housing prices will, and as you argue, or as I argue, must first increase the price of affected houses". So I think this is really a fundamental insight for this paper and the topic of upzoning generally. And it's one that's really rarely discussed when we're debating or planning zoning reforms. Can you tell us what you mean by that? Like, why does upzoning need to increase the price of affected parcels in order to actually address housing prices, and maybe affordability more generally?

Dan Kuhlmann 10:45
Yeah, I mean, I think when we're talking about these types of zonings, or even just approvals for individual projects, we sort of jump ahead. We jump ahead to like, what's going to happen when the property is redeveloped, and you know, people are moving in there to rent or purchase the new unit. But there's like an interim step. And particularly, there's an interim step that's important with this type of kind of upzoning, where you do have that, you know, first, if it's going to be redeveloped in the future, there needs to be value to that redevelopment, and that value is going to affect the price again - price of land, the development option that redounds down to the land. But again, like we would expect in the future, that you know, if this is a popular plan, and if there's actually demand for denser housing, Minneapolis, which I think most evidence suggests there is, over time, you're going to see redevelopment, and then you're gonna see that kind of more complicated affordability dynamics play out, where you have, you know, people are going to move into those new units, are going to free up their old units, those units are going to be you know, the filtering process is going to play out kind of over time.

Michael Manville 11:44
Yeah, I mean, I think this is a really important point. And I think that distinction, Dan is drawing between the housing price and the land price is really important. And that when you have upzoning of single family homes, you know, the only thing on the land is this one house. And so if you want to buy the land, it's going to look like you're paying more for the house. But the only thing I would add on to what I think is Dan's very good explanation is that one way to think about this is that, you know, if you want to do that redevelopment, the first thing you have to do is knock that house over right? And so in some ways, the house carries a negative value, right, because if you want to access the full value of the land, you have to buy the house and then pay to demolish it. And so what you're really seeing is a rising land price that manifests as a house price, because you can't buy the land without the house.

Dan Kuhlmann 12:37
Yeah, I think that's a really good point.

Shane Phillips 12:38
So most of the parcels affected by this policy changed, this ending of single- family zoning allowing up to three units per parcel, they already have a single- family home on them. And what you found is that the sales price of those homes went up an estimated 3 to 5%, faster in Minneapolis, than for similar homes on just on the other side of the border from the city. I think we can be pretty confident then because of that research design, that it was the upzoning that caused this, you know, relatively faster increase in prices within Minneapolis, rather than it being something like falling interest rates, which we would expect to affect, you know, homes on both sides of the border pretty much the same regardless of where they're located. Before we talk about how and why the prices went up, and what that means, I do want to note that this is a kind of unusual situation where the price increase actually occurred before the formal upzoning even went into effect. So can you tell our listeners how that came about?

Dan Kuhlmann 13:40
Yeah, I mean, so the process I don't know if I say it's unique, its unique to Minneapolis, I think all of these processes are somewhat unique. But the way in which, you know this, this change happened in Minneapolis is that the comprehensive plan was adopted I think in December of 2018, originally by the by the City Council. But Minneapolis is part of a regional government system, the Met Council, and so it had to go through their approval; any comp(rehensive) plan within the Met council needs to be approved by the Met Council. And so that took about a year for the Met council to review the plan, update their plans and then send it back to the city of Minneapolis for a final approval with some minor changes. And then after that, the city then had to go and actually update their zoning to reflect the comprehensive plan; the comprehensive plan is specific I suppose but really a large vision for the city but was specific in the sense that it's going to remove kind of or allow by right three units on formerly R1 properties. So what I'm doing here is I'm sort of taking in and kind of added to this unique is that as you said at the beginning that this was the first major city in the US to do the step of kind of blanket up zoning and remove single-family zoning and it got a lot of press; it got a lot of press in a way that obviously, you know, SB six is gonna get a lot of press too...

Shane Phillips 14:54
SB 9,

Dan Kuhlmann 14:55
... but you know, SB 9, sorry. SB9 is gonna get a lot of press too but you know, I think for a city that's medium sized, like Minneapolis, New York Times wrote up, there was the BBC, I think had an article about it. And so it was a kind of really high visibility change. And so what I'm doing is I'm measuring in that interim period, in part because that's what I had data for. But in part, because I think it's an interesting kind of period in which, you know, everyone seems to be kind of aware that this change is coming. But you don't actually get to the point where the change is implemented in the zoning code. And I think, you know, there's probably some complexity in the way in which the city implemented zoning code that still makes it hard to build these properties. So you can still do it by right but you might have to go and get a variance. Because you know, you can't fit that on your property with the setback and stuff like that. So this is kind of the initial shock of this change, I'm trying to measure that in terms of the prices that I'm measuring in this paper. So I think it'll be interesting to see if it persists after, you know, that the adoption was actually made in the zoning code.

Shane Phillips 15:56
Right, and you point out that the initial proposal was really just, you know, what was approved in the 2040 plan before it went to the Met council?

Dan Kuhlmann 16:04
Yeah

Shane Phillips 16:05
It was basically just, "we're gonna end single family zoning, and we're gonna allow threeplexes everywhere", you didn't have the setback rules, the parking rules, whatever else established yet. And so in a way you're measuring, like, the most radical or aggressive approach, where people just assume "well, I'm going to be able to build a three flex anywhere". On the other hand, because it wasn't formally approved, maybe that's sort of putting some downward pressure where people are still a little unsure whether it's going to come about and they're maybe not willing to pay quite as much. So it's hard to know, whether studying during this period,if you had studied it if they just approved it day one with the existing regulations, and restrictions, maybe prices would have gone up even more, maybe they would have actually gone up less. It's just, we can't know, I think.

Dan Kuhlmann 16:54
Yeah, one thing to note is that also in Minneapolis, or Minnesota, I think state law requires that if there's a conflict between zoning and the comprehensive plan, the comprehensive plan takes precedence. And so there was, I mean I don't think it happened, I think there was a token number of approved triplexes during that period, but the city was sort of assuming that this change was going to come in approving properties kind of preemptively. Kind of knowing that it was income in the future, because they didn't want to, you know, open themselves over to a potential lawsuit.

Michael Manville 17:26
I would say, I think everything you guys said it makes sense to me. My gut is that any amount of uncertainty is going to push the price down a little bit. If you just think, in general, when someone buys a house, forget about the potential land use, if the realtor is saying, you know, there might be asbestos in the basement? It's like, "well, I'm gonna pay a little less now". So, you know, you can just imagine it would be that knowing exactly what it was, that the buyer was getting into opportunities and limitations, would nudge prices up a little bit more than just someone saying, "hey, you know, they're gonna let you build more on this lot. We're not sure exactly how yet," right? I mean, obviously, there's going to be, you could imagine, some subcomponent of the buying public that just interpreted that super optimistically, and was like, I'll build a tower, you know, I'll pay more. But most people I think, would probably be a little bit conservative.

Shane Phillips 18:27
A threeplex tower, each unit has 4 stories, 4 stories tall. So in this study, you don't assume that the zoning change will affect all neighborhoods, or all properties or parcels equally, you hypothesize that the results might differ for homes in higher-value neighborhoods versus lower-value ones, for individual properties with smaller or cheaper homes relative to those in, you know, the immediate vicinity. Can you explain for us a little bit about the reasoning behind those assumptions?

Dan Kuhlmann 19:03
There's sort of two things at play. You know, the first is that, you know, as I sort of said in my initial example, you would expect the kind of development option that this upzoning gives property owners is going to be most valuable when you're actually going to, you know, probably develop or there's a possibility to redevelop the property right? So, rezoning a parking lot in Los Angeles, downtown Los Angeles, is valuable because there's pretty proven high demand for housing or office in that area, right? Alternatively, you could think about, you know, buying a parcel of land in rural Iowa and rezone it for multifamily, right? Sure, it gives you more options with what you can do with your property, but no one's gonna build, you know, a dense multifamily in rural Iowa and you know, it's used as agriculture's and some is very valuable itself, it's already at its highest and best use. So you know, that zoning change in rural Iowa probably just gonna have no effect essentially on the price of the property because no one's gonna do anything different with it, it's not a binding change. You know, the other thing that's happening. And so, again, this is what I'd sort of expect in Minneapolis is that there's some properties that are better positioned to be redeveloped potentially right? They're kind of underutilized and their current single-family use, they're near transit, closer to downtown, you would expect those ones to see the benefit of this rezoning more, right? And then alternatively, like, you know, another way is sort of conceptualize this, and I remember when I was... we're all urban planners here, and we probably all took a land use law class at some point, and the way that like, you know, real property rights are, you know, sometimes introduced to students as like a bundle of sticks, where you have each stick being a component of what you can use the property for. So, you know, one stick is location, and then another stick is, you know, mineral rights or something like that, right? And so we could think of the development option, kind of the regulatory approval as being a stick within that bundle, and so upzone, you're adding a new stick, if that stick has value, it increases the price of the entire bundle, right? You know, alternatively, and this one gets a little bit more complex is that you could also think of, in certain situations, single family zoning is almost like an insurance policy, it's an insurance policy that binds you to the current use, but it's an insurance policy that people around you aren't going to change, or aren't going to redevelop their property either, right? And so, you know, you can think, especially in places, like you see this in the suburbs all the time right, is where you have really exclusionary zoning and suburbs. One of the things yeah, it means I can't develop my house denser, but then it gives me some kind of insurance about how other people are going to use their properties.

Shane Phillips 21:39
I can't, but neither can my neighbors.

Dan Kuhlmann 21:40
Exactly, yeah, binds us to the same sort of contract, or at least this is the perceived effect, right? And so that insurance is a stick within the bundle, and so upzoning, you're removing that stick. And so for some properties, and neighborhoods that really value, low congestion or value, you know, more cynically, you know, racially and economically homogenous areas, that stick remote is removed. And if you're not going to redevelop the property, it's all of a sudden, it's like, I just don't know what's going to happen to my neighbors. So could actually, if the, I'm mixing my metaphors here now, but if the, you know, insurance stick outweighs the redevelopment option stick, you could actually see there no price change, or maybe a decrease in the value of the property as well.

Michael Manville 22:21
So that's a great point. And I think it goes back to the distinction that I raised earlier, which is that the the upzoning could push up the value of land, land and push down the value of the house, right, this, this piece of land now becomes a little bit less desirable for someone who is it's very places a high value on living in a detached single family home, in a neighborhood of detached single family homes. Right relative to a place where that upzoning hasn't happened this is that that person now faces a more uncertain future, they might buy a detached single family home and know that they will never ever sell it to a developer, but their neighbor might. And so yeah, that if you have a lot of neighborhoods where people share that, that that understanding, then then the houses become less valuable, in some ways, because the land becomes more valuable.

Dan Kuhlmann 23:12
Yeah, that's a good way to put it.

Shane Phillips 23:13
Is it fair to say that, you know, different people, they value the land and the the house differently, like relative to one another? like a person who wants to tear down a house and build a three Plex, their value is all land. And actually, the house just represents negative value, as you said, Mike, versus someone who wants to live in it, you know, maybe the land has some value. That's not really clear to me, but they actually do value the house itself. And that's a significant share of is that like a reasonable way to think about this?

Michael Manville 23:47
I'll take a shot at it. And then I'm curious to what Dan thinks. I mean, I think the the merit to what the distinction you just do, Shane, is that certainly at the moment, you're doing one, you're not doing the other, right. So if you're if you're, if you're living in that detached single family house, you're not interested at least right then and becoming a developer and taking it down. And if you're interested in becoming a developer taking the house down, you can't simultaneously be the person who wants to live in that house. Like, that's a very obvious distinction. But I do think, but one could then take that and run well there's just different types of people who do this. But of course one thing that we often do in the social sciences is we divide people into different time slices, right? And so, this is where the entire concept of option value comes from. That you may be a person that wants to live in the house now but actually appreciates. You really like the house and that's what you need, maybe you get a couple kids and you like the school district nearby. But you also have a sense that things won't always be that way. And you like the option of in 10 years or in 15 years being able to sell to a developer. And so i think theremight well be. And of course, we all can probably think of different types of people who would look at a single family property and imagine different, best uses for them. But I also think that the same person over time, might choose to use the house or sell the land, depending on their circumstances. And I think that's a degree of flexibility. That's a nice part of upzoning single family parcels.

Dan Kuhlmann 25:24
Yeah, no, I totally agree, I think you could, you can add to that, you know, potentially, it's like, when you purchase this thing, when you own your home, you are using your home, but you're also an investor. And so you're thinking about the long term value of your property. And so even if I am never going to redevelop my home, I can think about the, you know, the the next person who might right and so that's something that's valuable. I mean, the good example that's used a lot is like thinking about suburban schools, right? Like you as a homeowner in a suburban area, you don't have kids have reason to care about the quality of your schools, because it impacts the property of your home, right. And so it can lead to this, you know, NIMBY behavior in rural areas, or in suburban areas, even with people who don't have kids who care a lot about school quality, because, hey, that affects my resale value at the end of the day.

Michael Manville 26:14
And I do think, you know, just to add on to this, because I think it's important, this discussion, and in many ways, Dan's paper, gets out what is sometimes seen as a puzzle in debates about upzoning, which is to say, on the one hand, homeowners object to it, because they worry about what it does to their property values. And yet, most people agree that it would make their property more valuable. And I think the resolution to that lies in this distinction, which is that, yes, people worry about their property values, but a lot of them for a lot of them that that value of their property is layered on top of a value on their neighborhood not changing and then being able to stay in place. Right, that, that if you were someone who wants to stay in the house, you have right, and you want to stay in the house you have because you really like the neighborhood the way it is, then the increase in the value of your land may not mean very much to right. Yeah. And I think I think if we don't sort of draw that distinction, then then a lot of the this whole second part of the discussion about upzoning becomes hard to reconcile, because like, Oh, yeah, these homeowners are just being selfish. And you say, Well, okay, but you just said they're turning away a big premium on their land.

Shane Phillips 27:28
Yeah, I do think we, and myself included, tend to ascribe a little bit too much of this to financial motivations, when a lot of it is just people like where they live. And they might actually give something up or, you know, pass up a rising property value, if it means they get to keep it the way it is today.

Michael Manville 27:48
I'll just add one more point to that just to finish it off, which is just I think there's a lot of evidence that people overlook opportunity costs, right? That the one thing people understand is that if they block some development, in their single family neighborhood, you know, in part because they just really like their single family neighborhood, their their home value probably will go up relative to what it was like. So they really are making a gain. And what they overlook, is that the gain could be even larger. Right? If they just let the zoning happen. So there is it's a, there's a distinction there where there. It's not altruistic to block development, or selfless, like they are getting ahead, but they're getting ahead in the way that works best for them. By being able to continue to keep the neighborhood the way it was when they moved in, which of course, they probably valued because otherwise, they wouldn't have paid a bunch of money to move into.

Shane Phillips 28:41
I think there's a this is something that's unique about these blanket up zonings. In particular, were because you're up zoning, everything. And the, you know, number of potential development sites, for those interested in redeveloping is so large, that you probably don't expect the prices to go up very much for any specific parcel. So you have this situation where the price is not really going up. But everyone is losing that insurance function, that nothing's gonna change. And so you can see how people might, you know, especially just like this, I mean, we think it's good for affordability. And so I think I certainly would argue and I think many of us would argue that is a worthwhile trade. But it's, it's, it's a different thing than upzoning, like a specific neighborhood in a more concentrated way, where the people whose homes are up, zoned are probably going to go up in value by quite a bit. This is something where they're probably not and as we see here, you know, maybe they go up a little bit, but not all that much.

Dan Kuhlmann 29:38
Yeah, and I think it's important to remember too, that like the again, it's different based on the characteristics of the neighborhood, and then what what I try and get into a little bit in my paper, the characteristics of the property within the neighborhood, too.

Shane Phillips 29:49
Right. Can you talk about that?

Dan Kuhlmann 29:50
Yeah. I mean, so one of the things again, so we talked about kind of differences in neighborhoods, so you know, neighborhoods that you know, are already kind of diverse land uses, and they have this one, you know, single family property, that's only a single property single family property by virtue of the pre pre existing zoning, right, like it would have been redeveloped years ago, you can think of those houses that are, you know, cheap rentals or something like that, or relatively poorly maintained rentals, and so that, and so that you would expect difference between places, but then also, you know, the thing that I was trying to get out of this paper is looking at like, okay, you would think there's some properties, again, that are just kind of by virtue of the characteristics of the property in the lot are already at the kind of highest best use and their current use, and there's some that are going to be, lower quality, older, or will take substantial reinvestment to bring it up to the quality of the neighborhood without the zoning full on redevelopment.

There's my brother lives in Cambridge, Massachusetts, and you know, very nice neighborhood, lots of very expensive houses, but there's some holdout houses that are just that exists, you know, would have been redeveloped into, you know, for plexes for Harvard professors, if not for the single family zoning that makes it impossible to build anything, literally houses with holes in the roof, across the street. And it really only exists because the zoning protects it in its current use. And so you can what I'm trying to get at in this paper is like looking at, Okay, can we say something about kind of the relative position of individual properties in their neighborhood, does that then affect how this blanket up zoning affects the kind of price increase and so my brother's neighborhood, the house across the street that has a hole in the roof, if you were to absorb all of Cambridge, that house would, that not the house itself, obviously, but the land underneath, it would become immensely more valuable, because you can develop it into a four Plex overnight or greater.

Shane Phillips 31:41
I'll say one more thing. And I can ask you, you know, what you actually found with respect to these things. But just to illustrate this a little bit further, I think, you know, if you have that aging home, that I don't know what the value might be in Minneapolis, maybe three or $400,000, versus just, you know, across the street or whatever, someone just renovated their home before selling it or after, you know, it was flipped or something and it's going for $600,000. Either way, if you want to redevelop, you got to tear it down. So you're going to buy the $300,000 one if you can, and you might even pay $330,000, if that still makes sense for your for your project. So I think we're kind of hinting at what the results were here. But can you tell us on both the kind of neighborhood income and on the, you know, relative property value side of things like what your results were?

Dan Kuhlmann 32:34
Yeah, you know, I found on the neighborhood measure. I mean, I think ultimately, that is kind of in hindsight, probably the weakest measure, I have our empirical finding I have in this paper, I think there's just better ways to measure it. And hopefully, someone else or in the future research, I'm better able to sort of think about which would how to kind of divide neighborhoods in this study,

Shane Phillips 32:55
The way you did, it was just if the neighborhood is above or below median, houses and cars

Dan Kuhlmann 33:00
Or moving median value of the property. Okay, meeting. So again, like I can get into more technically, well, I don't think that kind of in hindsight, is the best way to do it. But I do find, you know, in that the results are sort of inconsistent, but it does find that, you know, like the, the lower valued neighborhoods seem to have the bigger impact.T he, you know, the relative position that's more consistent. And so I find pretty consistently that you know, both by size and value, the relative position of an individual property compared to neighbor, its neighbors, you know, 250 to 250 meter radius, if I remember correctly, 200, I think 200 out. So that's, that's an important, that's an important finding, and statistically significant results. So like, the larger Your house is relative to its neighbors, the less the value of the upzoning on that property. So, again, it gets a little difficult to interpret the coefficients in terms of, you know, because it's a triple interaction, as opposed to just a single interaction and normal difference in differences. But it's significant and consistent and kind of directionally as you would expect it to be.

Shane Phillips 34:03
Something that, you know, I really like about this paper is how you can interpret it so many different ways. For better or for worse, depending on your priorities and your perspective. You know, you find that the sale price of single family homes goes up as a result of the up zoning. So some people might argue that it's reducing affordability or even causing gentrification or something. On the other hand, three to 5% is not actually all that much. And as you argue in the paper, an increase in land value on some parcels may be necessary to spur housing production, and hopefully improve affordability for Minneapolis or the region overall. And you know, ultimately, if nothing happens to the sales prices, then the policy hasn't done anything so it should increase prices somewhat. On a third hand, the fact that the increase in sales prices are concentrated among smaller and lower value homes might be an argument that the policy is taking the most. Affordable Housing on the market and making it less affordable. On a fourth hand, for wealth equality purposes, which I think a lot of us are concerned with, you know, between racial groups and so forth. Maybe the people who own the cheapest homes are exactly the people whose home values, we want to go up the fastest. And you know, sales prices are going up. And just because sales prices are going up, that doesn't mean that rents are also going up. So if the policy succeeds at stabilizing rents, on the one hand, while increasing property values for the least wealthy homeowners on the other, that sounds like it could be a win win. So I could go on with these points and counter points. But to turn this into more of a question, how have you and you know, people around you people in Minneapolis, maybe been interpreting the findings from your paper? What kind of responses have you been getting about it.

Dan Kuhlmann 35:50
You know, generally favored by I went to great pains, probably by as illustrated by your, your kind of summary of my conclusion, to really kind of qualify my results, I think, in part because it's it's somewhat, it's not talked a lot about and so I didn't want people to confuse what I'm finding here with increasing rents, which is absolutely not what I'm measuring. I can't measure it at this point. That's going to be a longer question to see whether or not this changes that kind of affordability generally. So that's one part of it. And so Secondly, I mean, I think this is something I was thinking about. And because I qualified it, I suppose. I don't think anyone has really misinterpret probably people still misinterpreted it. But I hopefully, I think it's harder to misinterpret kind of exactly what I'm trying to say with this paper,

Shane Phillips 36:32
Just at least at least on accident.

I'm sure plenty of people will be happy to misinterpret it intentionally.

Dan Kuhlmann 36:40
Yeah, that's a good point.

You know, I do think there's that, you know, I'm not, certainly in this paper, weighing that sort of normative question of like whether or not single-family homeownership among low-income families is a good thing, or is something specifically single-family homeownership, homeownership as for low income, people, you could argue is beneficial, but for single-family homeownership, specifically, maybe, maybe not, I don't know in Minneapolis specifically, but I think, you know, that this benefit is more to those homeowners is probably good. Certainly, you know, the georgist in me would be kind of upset if this is a windfall gain to the richest people who have made housing really unaffordable in Minneapolis by the way that they stop all development, kind of already time right? Another thing, which maybe I'll pose to both of you as a question, as I sort of thinking through this, as I was rereading my papers, you know, again, the georgist means kind of has a bad taste in my mouth, when I think about the fact that, you know, it is a windfall gain, it's a regulatory change that affects homeowners and homeowners in Minneapolis, by and large are the ones who have profited from the fact that there's a supply constraint in Minneapolis, right? We don't tend to focus on these changes and focus on the fact that can actually increase property values when we're talking about this from a policy perspective. And I don't know, like, should we talk about that more? Like, should we use this more as you know, as a carrot to try and get people to understand the benefits of potentially rezoning properties?

Shane Phillips 38:07
I'll just give a quick answer here and say, I feel like I've made that argument. And I have seen it, it doesn't seem to be persuasive to many people, at least. I mean, but it's always hard to know, because the people you interact with are usually people who already have their opinions formed on these things. And, you know, if you were to make that case, to someone who's just kind of indifferent and doesn't really follow this stuff, and is, you know, maybe uncertain about whether they support upzoning, and you tell them, "Hey, you know, it can actually increase your property value," I could see that being persuasive. Mike?

Michael Manville 38:42
Yeah, I mean, I think it goes back to what we were talking about before, I think that if you're heavily involved in the debate like this, on the side of, you know, being against changing the zoning, chances are you have a strong attachment to the status quo in your neighborhood. And if that's the case, then again, this sort of, you're just going to see this more as an erosion of your insurance and less as the benefit to your property values. But I do think, you know, there are... one thing we know from research, Katherine Einstein's research and other people's about who participate, is that there is this vast, largely indifferent group of people or people with weakly held opinions, and it might well sway them. And, you know, when people have done polling, scientific polling of California, most of them like the idea of upzoning property. And I don't know if that is necessary because of property values but you know, there's a difference between the person that you are trying to persuade who has already said that they are diametrically opposed to what you want and a person who doesn't think much about land use but happens to have a home. I do want to, you know, I think Dan has made this great point twice, and I just want to really emphasize it a bit more, which is that he didn't study rents. And rents really are what matter when we talk about affordability and the rent really is, what would you pay to live in this unit today. And one way to think of the difference between a rent and a price is the price has all sorts of expectations built into it, which is exactly the reason why upzoning raises the price, right? And you can just imagine the difference if you went to one of these houses in Minneapolis, post upzoning, how you would react if you're looking to rent the house or buy it, right? If someone said to you, if you buy this house, you know, "you have the option to turn it into three units, and you could sell it for a lot more money," you'd be like, "Oh, well, you know what this is worth paying a little bit more for." If you're renting the house, and someone said, you know, at some point, someone could knock this over and build three smaller units on this parcel. At best, you'd be like, "I don't care, just sign me up a one year lease", or you'd be like, "well, I might even pay less like you might knock this over" right? So it really is, and I think, you know, Dan's research has not been, I think, to my knowledge as aggressively and willfully misinterpreted as, for instance, on a Freemark's, which found something similar, but it's, you know, this difference between a price which has built into it all the sort of sale and wealth effects that could happen if you own the property, and the rent, which is like, you know, if you own the property, what can you convince someone to live in it for this month? It really is a very important distinction.

Shane Phillips 41:23
So to turn this to, you know, what actually happened after that, I guess, for the more like, policy side of things, my understanding, now in 2021 I guess, you know, this initially was approved in December 2018. And then, as you said, went to the Met Council for a year or so. So maybe late 2019 or so when it actually went into effect. It sounds like not a lot has really changed, not a lot of properties, you know, have been... redevelopment applications have been submitted or building permits issued. Where is the city at on sort of the actual production side of things in response to this change in law?

Dan Kuhlmann 42:02
You know, the most recent kind of number I saw was, like 25 units in the last like a year and a half that it's been implemented. So 25 units have been approved permits, I don't know how many have actually been constructed, I mean, think, challenging here is that it was coinciding with a pandemic, and so that redevelopment, but I mean, honestly, you know, people will hold that up as evidence of the failure of this, and it's like, I don't think anyone was arguing that this is gonna change... well, people were certainly arguing, disingenuously that this was gonna change Minneapolis overnight, where they're gonna be bulldozing full neighborhoods, and, you know, building triplexes, where there used to be single-family homes. But I think, you know, on the proponents' side of things, no one was saying this, this is going to be a piecemeal change, and it's gonna take time, and I think particularly the fact that you landed at triplexes, that's a difficult unit to develop units to develop, and maybe relatively expensive. And so it's going to take time for, you know, developers to develop the expertise and that kind of homebuilding production to take place on any kind of measurable scale or interesting scale. And so I think that's, you know, again, I think 25 isn't nothing, for sure, that's, you know...

Shane Phillips 43:14
It's close to nothing

Dan Kuhlmann 43:16
It's 35 more units than was there before.

So it's 25, buildings, 75 units

Yes.

Shane Phillips 43:24
Can you talk a little bit about, again, more on the policy side, why you think uptake has not been higher? I've heard, you know, there were setback requirements, and these kinds of things that really restricted what you can put on the land itself, even if technically, you can have three units, it's very hard to actually find the space for them, basically.

Dan Kuhlmann 43:45
Yeah, I'm not as well versed in that exactly. I mean, I've heard those sort of anecdotes, as well as like, you still have setbacks, you still have like, I think you kind of had like in certain situations you had to build on the original footprint, I think was part of the zoning requirement as well. And so that's complicated. And you know, it probably takes time to identify the correct properties and go through the variance process when those kind of regulations don't work. But I think, you know, again, I think time will tell to see whether or not this actually... maybe the zoning restrictions are still binding in a way that, you know, the by-right three units were not, and then, you know, today I would say expect that this price jump that I see is going to be momentary and is going to, you know, moderate over time when people say, "Hey, we're not actually developing these and there's not really demand or there's there's demand for them, but actually kind of producing them is proving complicated."

Shane Phillips 44:36
Yeah

Michael Manville 44:37
Yeah. Further over time, it's possible that some of these problems get resolved. I think what you mentioned, or alluded to, just a moment ago about figuring out how to do the triplex, that can very well be a real issue. I mean one of the aspects of that is called missing middle housing. We haven't built it in so long that there aren't developers out there in Minneapolis, or probably in the country who just have, essentially off the shelf missing middle solutions, right? The way that in my neighborhood in Los Angeles, if you want to max out your single-family zone, your single-family parcel, there are things here we call them, 'sketchup houses', they've clearly been drafted on Google SketchUp. You can just get the most out of it, and they know exactly how to do it. And similarly, all across the country, you know, the relatively small share of land that we allow for multifamily, there is the standard five over one, right? The developer knows how to do it, there's always some idiosyncrasies, but there's something you can pull off the shelf, and they can go in and build that. And we haven't built triplexes, and fourplexes, you know, very much at all, in much of the country for so long. And the unit developers are like anyone else, which is like they do what's easy and what they're good at. And so it's going to take some time to solve these problems, including whatever sort of regulatory hurdles come from how this particular ruling, or zoning interacts with your setbacks, parking and so forth. So there's always a learning process.

Shane Phillips 46:08
Yeah, I think I may have heard that there's also a floor area restriction of maybe only like a point five FAR, meaning of 5000 square foot lot, you can only build a 2500 square foot home or triplex. And that's, you know, that's not a lot. There's not a lot of upside to that. But I do think to what Mike was alluding to earlier with ADUs, what we've seen here in California is we passed a law where we said, you know, you have to allow ADUs in your city or adopt some enabling legislation or whatever, all across the state, and for the first year or two, not much happened. And just progressively year after year, the legislature has come back and said, "Okay, what are what are the sticking points? Is it setbacks? Is it utility access fees? Is it other impact fees? Is it parking," and they've just been pairing those things away? So I could see, Minneapolis may be doing something similar if they if they realize this just isn't delivering like they hoped it would.

Dan Kuhlmann 47:08
Yeah, hopefully, that would be a few things.

Michael Manville 47:11
And I think it's, you know, again, something that that all of us on this show, and most of our listeners probably know, is that there's no one thing, right? That through a combination of both intent and incidence, you know, incidental stuff, there's all sorts of things prevent the redevelopment of housing and even modestly higher density. And so it's symbolically big, I fully agree with that. A big city or moderately sized city in the US said, "no more single family zoning," just like it's symbolically very large, California has ended it. But I think most of us who watch this area know that, you know, this doesn't mean that tomorrow, there's just going to be a gusher of new housing right? It's a necessary step that we had to take, and it's probably going to reveal to us that we have to take a few more steps.

Dan Kuhlmann 48:02
Yeah. I mean, I think you could view it more optimistically to you could say, you know, SB 9 was possible, because, you know, I don't know how many people genuinely believed or genuinely believe that Minneapolis was gonna be bulldozed. I mean, there was a famously a sign in one of the neighborhoods that like said "don't bulldoze our neighborhood", in these, you know, million dollar Victorian homes. But you know, that has been somewhat incremental, I think it could be beneficial for future changes in other places. So you can hold up Minneapolis to say, "hey, you know, this is another option, you maybe it increased property values a little bit and, you know, it's not overnight, changing the characteristics of your neighborhood, if that was really a legitimate fear that you had".

Michael Manville 48:43
Right, that's the other thing that always comes up when with SB 9, with this, you know, and which, again, alluding to my neighborhood, one thing people don't fully understand, or perhaps choose not to understand is that at any moment, their neighborhood could be bulldozed right? All that would happen, though, is that the existing single-family house would be replaced by a really big single-family house. Two blocks south of me is an expensive single-family neighborhood that is being slowly demolished, bungalows and old-style California single-family homes are being replaced by single-family homes that could literally be apartment buildings. And so the bulldozing doesn't have that much to do with the zoning right? The bulldozing is about how much that property is worth and what someone thinks they can do with it. And I don't like to see bulldozing any more than the next person but the zoning is somewhat incidental.

Shane Phillips 49:36
And if it's going to happen, probably better than it'd be for a more affordable condo or apartment building than a $4 million 5000 square foot single-family home.

Michael Manville 49:45
Exactly.

Shane Phillips 49:48
I'll make sure to include in our show notes, a couple articles that I find useful and informative both from the Sightline Institute, one of which I think gets to this point about how slowly things actually change in neighborhoods, I think it's the Sightline Institute, I'll have to confirm. But it basically just shows, you know, a neighborhood I think in Portland that was actually upzoned decades ago, to allow for, you know, duplexes or maybe triplexes. And how most parcels they're exactly the same today, decades later, as they were when the zoning change happened. And the other article is more recent, and it's looking at, since Portland did something similar to what Minneapolis did, but they actually provided more options for how.... so not just three plexes, you can also do up to six units, if I think 50% of them are income-restricted, you can do like a backyard mobile home type thing, you can do these more infill type things that don't require tearing down the existing unit. And that's something I think that is, is really important and maybe distinct from what's currently allowed in Minneapolis, where you can just build on the empty or under, you know, on the land where there's not currently a home on your property without having to tear down the existing one. And that is a lot easier, it's a lower barrier to entry to do that than to tear down the existing home and build from scratch. So what's next for studying Minneapolis? This is the very early analysis so you're going to do the just early or middle analysis?

Dan Kuhlmann 51:21
Yeah, you know, I'd certainly like to go back and see, you know, if development happens, kind of figuring out where it happens. I think kind of related research, not in Minneapolis specifically, this research kind of raised that question for me and kind of trying to understand, where do we build this missing middle housing? Where have we done it historically? What were the conditions in place when we built it historically? Can that teach us something about the way in which, you know, planners and developers can use this type of housing kind of going forward? And the way because again, like I think Mike said, really well, we just don't, we haven't done it and so long that no one, you know, no one who's working today remembers when it was kind of a really kind of a common housing type. And so I think trying to understand where this type of housing was built, where it's still being built, and seeing if that can kind of point to future direction is the question that I'm kind of interested in?

Michael Manville 52:11
Yeah. Anyway, I mean, it just to caveat my earlier statement, and just thinking of some people I know, of course, there are people out there who do duplexes, they do triplexes, and so forth, but it's just nowhere near the industry standard, right, that the single-family home or the bigger multifamily is. And so that's what we need is getting to a point where like, yeah, if you're in the business, like you have a model for how to do this, but I think that history if you pursue it, Dan would be really interesting and really useful.

Shane Phillips 52:39
Dan, is there anywhere our listeners should find you, Twitter, website, anything?

Dan Kuhlmann 52:45
I have a website, Dankuhlmann.com. I think you can see me having wasted a couple hours to make a website so you can see my resume and stuff there. And wandering around Santa Fe for the next three months. Yeah, see me here so...

Shane Phillips 53:03
Great. Well, thank you so much. This was an amazing conversation.

Dan Kuhlmann 53:06
Yeah. Thank you.

Shane Phillips 53:07
Thanks. Bye.

Michael Manville 53:08
Thank you.

Shane Phillips 53:13
Show Notes for this episode. key takeaways from the paper and a transcript of the interview are on our website at Lewis.ucla.edu. The UCLA Lewis Center is on Facebook and Twitter. I am on Twitter @ShaneDPhillips, and Mike is there @MichaelManville6. Thanks for listening. Thanks again to Professor Kuhlmann for joining us, and thanks to me for not making a joke about how he's a very cool man. See you next time.

Transcribed by https://otter.ai

About the Guest Speaker(s)

Daniel Kuhlmann

Dan Kuhlmann is an assistant professor of community and regional planning at Iowa State University. Kuhlmann focuses his research on housing, local public finance and real estate.
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